Daily Stock Pick: October 27th, 2021

Stocks were flat in early trading today after another record-breaking day for the Dow and the S&P 500.  Companies continue to impress with better than expected earnings numbers, proving their strength in the face of supply chain headwinds and a viral wave that threatened markets in Q3.   So far this season, of the 30% of S&P companies to report earnings, 82% have topped earnings expectations.  Concerns about the latest spreading variant have cooled as infection rates have steadily retreated, but much has changed in the wake of the pandemic.    

The pandemic forced us to change the way we go about our day to day in so many ways.  The disruption was felt deeply, but some of the changes that resulted have proven to be upgrades.  One area where this is the case is education.  Our stock pick for today features an education software provider that, through its versatility and broad offerings, stands to benefit greatly from changing education models.  

Since 2016, cloud-based education software provider PowerSchool’s (PWSC) has been helping K-12 schools and universities operate, manage and track everything from admissions, attendance, and homework and to offer online platforms, student counseling, career counseling, and teacher support.

PWSC stock has seen considerable gains since its July 28th IPO.  The company’s initial public offering raised $809 million.  After less than two months on the NYSE, PowerSchool closed yesterday with a market capitalization of $4.09 billion.  PWSC shares began trading at $18, peaked as high as $35.88 (after positive feedback from the analyst community), and has since dropped to around $23.50

The company’s most recent earnings were generally in-line with consensus estimates, but its revenues indicate strong demand that is expected to continue as schools reopen, and students return to the classroom.  Revenue was up 41% year-over-year.

“The demand for our unified solutions that help accelerate learning outcomes and improve school operations is demonstrated by continued business momentum driving strong and balanced results in the second quarter,” said Hardeep Gulati, PowerSchool CEO. “We believe our unified solutions are filling that need for our customers and are helping to drive real impact within their communities. The funding environment for K-12 education remains robust and has resulted in continued investments in technology from our school and district customers, and the momentum we are seeing gives us confidence in our ability to deliver on our 2021 and 2022 plans.”

The company’s subscription revenues were up 37.5% year-over-year, showing that existing customers are sticking around and upgrading their purchase packages.  Net loss was $2.5 million compared to $12.4 million in the prior-year period, an improvement of 79.5%.  

The software firm recently closed a high-profile deal with Miami-Dade County in Florida, underlining its value to major metropolitan school systems.  Plus, with 1.3 billion potential students to reach in international markets, the long-term prospects seem solid.

PWSC’s market-leading suite of K-12 software applications position it as a proper education platform.  Although the stock has seen considerable gains since its IPO, the share price remains at an attractive level.

The current consensus among 10 polled analysts is to Buy PWSC stock.  There are 7 Buy ratings, 3 Hold ratings, and no Sell ratings.  A median forecasted 12-month price target of $36 represents a 52% upside from its current price.  

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